By John Balassi and Josie Cox
NEW YORK/LONDON, April 30 (IFR) - Apple Inc wowed the debt markets on Tuesday with the largest non-bank bond deal in history, pricing a whopping $17 billion as the U.S. computer giant switches strategy to placate restless shareholders.
Just a week after announcing its first drop in quarterly earnings in a decade, Apple came to market with the massive deal to raise funds for an ambitious program that will return $100 billion in cash to holders of Apple shares.
Sources said investors could barely submit orders fast enough to get in on the deal from Apple, the only major tech company without a single penny of debt on its books.
The six-part all-dollar offering attracted more than $50 billion of orders by midday in New York - a massive level of demand even in the current red-hot climate of the bond markets.
"Apple made its intentions clear that this deal is for shareholder-friendly activity, but they have tremendous metrics and brand recognition," Rajeev Sharma, portfolio manager at First Investors Management Co, told IFR.
"Apple is something everyone wants in their portfolio."
The $17 billion size easily trumps the previous biggest single deal according to Thomson Reuters/IFR data, a $14.7 billion deal from Abbott Laboratories spin-off AbbVie last November.
Earlier, a source said potential investors had been told on Monday that this would be Apple's only bond deal of the year, apparently scuttling hopes of possible euro or sterling issues - and helping fuel demand for Tuesday's mega-deal, which was led by Deutsche Bank and Goldman Sachs.
CHANGING THEIR TUNE
The massive deal caps a milestone week for Apple, which in seven days has changed tack to satisfy its investor base, becoming the world's biggest dividend payer and recapturing its mantle as the world's largest company by stock market value at $413 billion.
Investors unhappy with Chief Executive Tim Cook's previous reluctance to share any of Apple's massive $145 billion cash pile with shareholders - and unimpressed by its diminishing prospects for earnings growth - had been relentless sellers of Apple's stock since its share price topped out above $705 in late September.
The stock tumbled more than 45 percent from September 21 to April 19, falling by roughly $320 per share.
But the stock has rallied more than 12 percent in the past 10 days as a new class of income-oriented investor, enticed by its dividend yield of nearly 3 percent, snaps up shares. They rose more than 3 percent on Tuesday to over $444.
Expectations for future profit growth have trailed off significantly in the past year. After 10 years of high double-digit profit growth, analysts on average now expect a 10-year compound annual earnings growth rate of less than 7 percent, according to Thomson Reuters StarMine, which tracks analyst forecasts.
RAISING THE CASH
Although the company has a staggering $145 billion in cash, only $45 billion of that is readily available in the United States - meaning Apple needs to raise about $60 billion over the next three years to fund the shareholder capital return plan.
Analysts suggest that hitting the debt markets now makes sense with interest rates - and thus the cost of raising funds - near record lows.
But the maker of the iconic iPad and iPhone failed to win the highest Triple A rating from agencies. S&P rated the company AA+, while Moody's rated it Aa1.
Nevertheless, the massive investor interest allowed Apple to tighten every tranche of the deal - from 3-year to a maximum 30-year tenor - by five basis points (bp) from guidance to launch.
The company sold $1 billion of three-year floating-rate notes, $1.5 billion of three-year fixed-rate notes, $2 billion of five-year floating-rate notes, $4 billion of five-year fixed-rate notes, $5.5 billion of 10-year fixed-rate notes and $3 billion of 30-year fixed-rate notes.
Analysts had initially suspected that the overwhelming interest would allow Apple to price the deal even inside last week's bond from Microsoft.
But some investors said Apple was leaving some spread on the table so that the deal would eventually trade tighter than the Microsoft issue - and so that Apple could get even better pricing next time round.
"If they are going to come back with another deal, be it in dollars or another currency, they will need to satisfy a similar investor type, so you want to leave a good taste in everyone's mouths," said Matt Duch, senior portfolio manager at Calvert Investments.
(Reporting by John Balassi and Josie Cox; Additional reporting by Danielle Robinson and Reuters News; Writing by Marc Carnegie; Editing by Ciara Linnane)